It’s like clockwork. Every time lawmakers in Baton Rouge start down the path of providing tax relief to help Louisiana families make ends meet and grow the state’s economy, you can count on the status quo crowd to scream “Fiscal cliff!” But is it real?

The short answer: No! (But it’s complicated.)

It’s easy to cast blame on tax reform or proposed tax relief. But, when taxes are intended to be temporary (and set to expire on a particular date) and automatic rate reductions are designed to happen only when there’s extraordinary growth in state tax collections, the real culprit is overspending.

A hard look at the facts leads to only one conclusion: taxpayers are sending more money than ever to Baton Rouge (by a lot!); the state’s financial reserves (between a variety of savings accounts) are relatively strong (though more savings can ensure an even more stable financial future); and smart decisions this session will set the stage for economy-boosting reforms that could provide job growth and increased opportunities for every family and job seeker in the state.

Let’s put this in perspective. When the first “temporary” sales tax increase was aggressively pushed through in 2016 (the end of LSU football was nigh, recall), the state general fund budget (excluding dedicated funds) was about $8 billion (see chart below). The general fund revenue projection (conservatively projected, as it should be) that makes the basis for the “fiscal cliff” argument in 2025 is about $11.9 billion, or $4 billion more! This represents an average rate of growth of 6.3% per year, which is nearly two times faster than inflation, which grew at 3.6% on average. In that same time period, the state’s population declined.

Remember, the argument for the “temporary” tax increase was to give the state time to get its fiscal house in order. Instead, state spending has increased dramatically over that same time period. As shown in the chart below, state spending has increased 87 percent since the “temporary” tax increase began. The result: a state budget that appears perpetually dependent on that tax increase.

* FY 23 is the budgeted amount as of 12/1/2022

** FY 24 is the budget recommended by the governor

The challenges don’t stop just with higher spending. Lawmakers have chosen to continue locking up tax revenue in non-reviewed silos, a practice many, including the Pelican Institute, have advocated to reduce. The result: those dollars can’t be used for other priorities when revenues dip (or when priorities change, for that matter).

For example, just within the last few years, the sales tax paid when purchasing a vehicle will no longer go to the general fund and will instead be dedicated to future transportation projects. This represents nearly $400 million annually and is another driver of the 2025 cliff projections. This is an important priority, to be sure, but legislators can still choose to spend those funds on transportation even without the dedication. This ties the hands of future lawmakers to make priority decisions about the budget.

Of course, further projections of increased spending have a role to play in the future as well, as including a projected increase in expenditures for Medicaid and early childhood education. These activities have been funded in the last several years with one-time (or time-limited) federal funding, but those federal dollars are going away.

Had the state used more responsible budgeting, as is suggested in the Comeback Agenda, the budget’s growth would have been much lower (see chart below) throughout the good times in preparation for the expiration of temporary taxes, or other, more substantial tax relief.

One more important lesson that should be learned: When the federal government offers temporary new funds, lawmakers should be thoughtful about accepting them, should be judicious in how they’re used, and should plan for sustainability once they’re gone. It’s important to avoid temporary federal relief becoming permanent obligations for Louisiana taxpayers.

To the extent a “fiscal cliff” looms in the future, it’s a cliff of the legislature’s own making, despite a decade to address the root drivers. And it’s a problem that can still be solved by restraining spending, growing the economy with tax relief, and addressing real budget reforms to increase flexibility and manage the inevitable ups and downs more effectively.